The Altyn Tagh fault system defines the northwestern margin of the Tibetan Plateau and has played a central role in its topographic rise and outward growth during the Cenozoic Indo-Asian collision. The Qaidam Basin is the largest sedimentary basin within the plateau and bound to the northwest by the active Altyn Tagh fault (ATF), the largest and most prominent structure within the fault system. Here we use an extensive grid of high-resolution seismic reflection data from the northwestern margin of the Qaidam Basin to study the Cenozoic evolution of the overall Altyn Tagh fault system. These data reveal a series of EW-trending and generally N-dipping high-angle reverse faults and a regional mid-Miocene unconformity, which are confined to a narrow zone along and adjacent to the ATF. Integrated structural and stratigraphic analyses of three balanced regional sections across this zone imply a three-stage deformation history. Stage I (ca. 53.5–16.9 Ma) was characterized by small magnitudes of strain on numerous faults and nearly constant rates of N-S horizontal and vertical strain. Stage II was short lived (ca. 16.9–15.3 Ma) and featured both a tenfold increase in strain rates and the development of the local unconformity along the ATF. Stage III (15.3 Ma–present) is characterized by cessation of slip along the EW-trending faults and an abrupt drop in strain rates by one or two orders of magnitude. We interpret the evolution of this ATF-parallel zone of faulting and exhumation as a localized effect related to the formation and subsequent abandonment of a large restraining bend within the Altyn Tagh fault system. This bend originally comprised the NE-trending North Altyn fault and the EW-trending Jinyan Shan fault north of the ATF before ca. 16.9 Ma, but was bypassed and largely abandoned upon formation of the ENE-trending ATF during a mid-Miocene tectonic reorganization coinciding with Stage II. The EW-trending faults initially formed during Stage I due to N-S compression within the bend. The sharp increase in the intensity of deformation during Stage II resulted from initial strain localization and then formation of the ATF. Relative tectonic quiescence during Stage III results from localization of deformation onto the ATF. We speculate that development of the original regional bend was controlled by an inherited L-shaped lithospheric boundary between the Tarim Basin and the Qaidam Basin-Altyn Shan that initially formed during early Paleozoic crustal amalgamation.